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Here's Why You Should Add DaVita (DVA) Stock to Your Portfolio

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DaVita Inc. (DVA - Free Report) has been gaining from progress in its kidney care over the past few months. A solid performance in the first quarter of 2021 and a slew of strategic deals also buoy optimism on the stock. However, dependence on commercial payers and integration risks are major downsides.

Over the past year, the Zacks Rank #2 (Buy) stock has gained 57.2% compared with 9.4% growth of the industry and 37.7% rise of the S&P 500.

The renowned provider of dialysis services in the United States has a market capitalization of $13.04 billion. The company projects 14.4% growth for the next five years and expects to witness continued improvements in its business. DaVita’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed the same in one, the average surprise being 19.59%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Let’s delve deeper.

Partnerships: DaVita has been engaged in a series of collaborations over the past few months, buoying our optimism. The company, this month, joined forces with the National Kidney Foundation (“NKF”) to launch a year-long pilot aimed at improving health equity in kidney transplantation with a newly developed program within NKF’s THE BIG ASK: THE BIG GIVE platform.

In April, the company announced the launch of its integrated kidney care program, VillageHealth, in association with Blue Cross and Blue Shield of Minnesota (Blue Cross).

Strength in Kidney Care: We are upbeat about DaVita’s recent progress in its kidney care business. The company launched virtual support groups through DaVita Care Connect (a mobile health platform designed for home dialysis patients) this month to foster a feeling of community and belonging for those receiving treatment at home.

In May, DaVita announced the expansion of its home kidney care program to include the HomeChoice Claria Automated Peritoneal Dialysis system enabled by another key renal player, Baxter International Inc.’s (BAX - Free Report) Sharesource remote patient monitoring.

Strong Q1 Results: DaVita’s better-than-expected earnings in first-quarter 2021 instill confidence in the stock. The company’s net dialysis and related lab patient service revenues increased during the first quarter of 2021. Buyout of several dialysis centers overseas is encouraging as well. The company’s consistently strong momentum with respect to the treatment of chronic kidney disease and end-stage renal disease has been impressive. Progress within DaVita Venture Group is impressive too. A solid guidance for 2021 is another positive.

However, DaVita generates a significant portion of its dialysis and related lab services revenues from patients who have commercial payers as the primary payers. However, there remains a risk of people shifting from commercial insurance schemes to government schemes due to the wide disparity in payment rates in case of a rise in unemployment. Also, an overall increase in Medicare Advantage beneficiaries in the United States is likely to lead to additional pressure on its profitability.

DaVita’s business strategy includes growth through acquisition of dialysis centers and other businesses, as well as entry into joint ventures, which may affect its results of operations. Per management, businesses that DaVita acquires may have unknown or contingent liabilities, or liabilities that are in excess of the amounts that the company had originally estimated.

Estimate Trend

DaVita has been witnessing a positive estimate revision trend for 2021. Over the past 90 days, the Zacks Consensus Estimate for its earnings per share has moved 7.5% north to $8.90.

The Zacks Consensus Estimate for second-quarter 2021 revenues is pegged at $2.88 billion, suggesting a 0.02% fall from the year-ago reported number.

Other Key Picks

A couple of other top-ranked stocks from the broader medical space are Veeva Systems Inc. (VEEV - Free Report) and National Vision Holdings, Inc. (EYE - Free Report) .

Veeva Systems’ long-term earnings growth rate is estimated at 15.8%. The company presently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Vision’s long-term earnings growth rate is estimated at 23%. It currently sports a Zacks Rank #1.

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